How to Form a Vermont Nonprofit Corporation

The steps to form a 501(c)(3) nonprofit corporation in Vermont.

Most nonprofits are
501(c)(3) organizations, which means they are formed for religious, charitable,
scientific, literary, or educational purposes and are eligible for federal and
state tax exemptions. To create a 501(c)(3) tax-exempt organization, first you
need to form a Vermont nonprofit corporation. Then you apply for tax-exempt
status from the IRS and the state of Vermont. Here are the details.

Form Your Vermont
Nonprofit Corporation

First, you need to form a nonprofit corporation under Vermont
state law (Title
11B of the Vermont Statutes Annotated).

1. Choose the initial directors for your nonprofit

In Vermont, you must have at least three directors on your
board.

2. Choose a name for your Vermont nonprofit corporation

The name of your nonprofit corporation cannot be the same as or
similar to, or likely to be confused with, another corporation or business name
already registered with the Secretary
of State. In addition, the name must include the word "corporation,"
"incorporated," "company," or "limited," or the
abbreviation "corp.," "inc.," "co.," or "ltd"
and you cannot use the word "cooperative" or an abbreviation of that
word in your name. To see if your proposed name is available, you can search
the Vermont Corporations
Database Keyword search on the Secretary of State’s website.

3. Prepare and file your nonprofit articles of organization

You create your nonprofit entity by filing a certificate of
incorporation with the Vermont Secretary of State. Your articles of
organization must include basic information such as:

the name of your nonprofit

whether your nonprofit is a public benefit corporation or a mutual
benefit corporation

the street address of the initial registered office and the name
of your initial registered agent at that office

the name and address of each incorporator

whether or not the corporation will have members; and

provisions regarding the distribution
of assets on dissolution.

The Secretary of State has a fillinable articles of
incorporation form for nonprofits on
its website which you can use to create your nonprofit corporation. Complete
and file your articles following the instructions provided. Be sure to include the
language required by the IRS to obtain 501(c)(3) tax-exempt status. For
tax-exempt status, the IRS requires:

a statement of purpose that meets IRS
requirements

statements that your non-profit will
not engage in prohibited political or legislative activity, and

a dissolution of assets
provision dedicating your assets to another 501(c)(3) organization upon
dissolution.

For more information on IRS requirements for tax exemption,
including sample language, see IRS Publication 557, Tax-Exempt Status for Your
Organization, available on the IRS website.

4. Prepare bylaws for your Vermont nonprofit corporation

Before you file your articles of organization, you’ll need to
have bylaws that comply with Vermont law. Your bylaws contain the rules and
procedures your corporation will follow for holding meetings, electing officers
and directors, and taking care of other corporate formalities required in Vermont.
Your bylaws do not need to be filed with the state -- they are your internal
operating manual.

5. Hold a meeting of your board of directors

Your first board meeting is usually referred to as the
organizational meeting of the board. The board should take such actions as:

electing directors (if not named in
the articles)

approving the bylaws

appointing officers

setting an accounting period and tax
year, and

approving initial transactions of the
corporation, such as the opening of a corporate bank account.

After the meeting is completed, be sure to create minutes that
accurately record the actions taken by the board.

6. Set up a corporate records binder

You should set up a corporate records binder for your nonprofit
to hold important documents such as articles of incorporation, bylaws, and
minutes of meetings. For more information, as well as minutes forms, consent
forms, and other resolutions, see Nonprofit Meetings, Minutes
& Records, by Anthony Mancuso (Nolo).

Obtain
Your Federal and State Tax Exemptions

Now that you have created your nonprofit corporation, you can
obtain your federal and Vermont state tax exemptions. Here are the steps you
must take to obtain your tax-exempt status:

1. File your Form 1023 federal tax exemption application.

To obtain federal tax-exempt status from the IRS, you will need to complete and file IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. This long and detailed form asks for lots of information about your organization, including its history, finances, organizational structure, governance policies, operations, activities, and more. For line-by-line instructions on how to complete the Form 1023, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).

Smaller nonprofits may be eligible to file Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. This is a much simpler, shorter form that is filed online. Only smaller nonprofits--those with projected annual gross receipts of less than $50,000 and total assets of less than $250,000--are eligible to use the streamlined 1023-EZ application.

See the IRS website for more information on the Form 1023 and Form 1023-EZ filing requirements.

2. Obtain your Vermont state tax exemptions

Once you obtain your federal 501(c)(3)
tax-exempt status from the IRS, your nonprofit is eligible for certain state
tax exemptions. For information and filing requirements for exemptions from
income, property, sales, and other state taxes, check with Vermont’s Department of Taxes.

3. Other state reporting and registration requirements

If your nonprofit has paid fundraisers, you are required to
register with the state before doing any fundraising activities. Check the Attorney General’s website for information and rules
about fundraising and registration requirements for nonprofits in Vermont.